Extremes of wealth and income inequality

The extremes of wealth and income inequality that have developed within the OECD countries, and particularly in the United States, since the early 1980s, have created unbalanced societies, which are by their nature more unstable than was the situation in the 1950s and 1960s. Arguably the mass of the OECD populations have little idea just how extreme the levels of inequality are, but the increasing pressures on the bottom 40% of the population will result in higher levels of social volatility. The London riots of August 2011, and the increasingly violent reaction to police shootings in the United States, notably the repercussions of the killing of Michael Brown on the 9th August 2014, in Ferguson, Missouri, give a clue to what may happen if a large percentage of the disadvantaged gave up hope in the system and decided to vend their anger. If large sections of the population in any country decided that civil unrest was their only opinion when dealing with a system that was seen as biased to the ultra-wealthy and unjust, then the police and security authorities would ultimately be unable to contain the violence, and social breakdown could be the outcome. This is the first reason why governments need to reduce inequality, but there are other arguments, related to the operation of the economy. There is some evidence from the United States that there is a correlation in that country between poverty and race. Massey found “A strong interaction between rising rates of poverty and high levels of racial segregation [which] explains where, why, and in which groups the underclass arose.”[1] In 2014 it was estimated that 31.82%, or 101.41 million, of the American population[2] was either black, American Native, or Hispanic, a group that was disproportionately poor and disadvantaged.

It also appears to be the case that the growth that did take place in major economies like the United States was disproportionately distributed to the wealthiest sections of the population, and that the poorest sections of society saw little, if any, advantage from economic growth. In fact, in order to fund themselves many took advantage of the easy, if expensive, forms of consumer credit that were made available to western consumers. Demos found that in the 1990s the average American family’s credit card debt rose by 53%, and for low income families the increase was 184%. Demos noted that these self-reported figures may have been far too low, the US Federal Reserve put the average credit card debt per household at about $12,000.[3] It appears that the rising amount of consumer debt in the US was due to the fact that real incomes for low- and moderate-income families were stagnant or declining in the period, and as previously noted, this situation has not changed.

[2] Colby, Sandra L and Ortman, Jennifer M – “Projections of the Size and Composition of the U.S. Population: 2014 to 2060, Population Estimates and Projections, Current Population Reports, US Census Bureau, issued March 2015

[3] Draut, Tamara and Silva, Javier – “Borrowing to Make Ends Meet, The Growth of Credit Card Debt in the ‘90s”, Demos, New York, 2003, p.10